The Marriage Tax Penalty: When Saying “I Do” Costs You Money
The Marriage Tax Penalty: When Saying “I Do” Costs You Money
COACHING POINTS
- The Myth: Most people believe getting married lowers your taxes. This is true for single-earner households (the “Marriage Bonus”). However, for dual high-income earners, marriage often results in a Marriage Penalty.
- The Cause: The tax brackets for married couples are not exactly double the single brackets at high income levels. Additionally, deduction limits (like the $10,000 SALT Cap) are not doubled for couples; they remain flat per household.
- The Strategy: High-earning couples must strategize around the “SALT Trap” and the “Medicare Surtax” threshold, sometimes necessitating filing separately (MFS) or shifting deductions to business entities.
The US tax code was originally designed for the “Leave It to Beaver” era: one working husband, one stay-at-home wife. For that family structure, filing jointly offers massive tax savings. But for the modern power couple—where both partners earn six figures—the tax code creates a mathematical disadvantage. Understanding where the “penalty” kicks in is crucial for accurate tax planning. Source: IRS Tax Tables / Tax Foundation Research
Scenario: Two earners, Alice and Bob. Each pays $10,000 in state taxes/property taxes.
- Scenario A (Single / Not Married):
Alice deducts $10,000 (SALT Cap).
Bob deducts $10,000 (SALT Cap).
Total Deduction: $20,000. - Scenario B (Married Filing Jointly):
The Household SALT Cap is $10,000 total. (It does not double to $20k).
Total Deduction: $10,000. - The Penalty: By getting married, the household instantly loses $10,000 in tax deductions. At a 35% tax rate, marriage cost them $3,500/year in this specific line item alone.
What-If Scenario: The Bracket Compression
Comparison: Where the 37% Top Bracket kicks in (2025 Est).
| Filing Status | Top Bracket (37%) Starts At | Note |
|---|---|---|
| Single (x2) | $609,350 x 2 = $1,218,700 | Two singles can earn $1.2M before hitting the top rate. |
| Married Jointly | $731,200 | The couple hits the top rate $487,000 sooner. |
SALT Deduction Limit
| Household Status | Max Deduction ($) |
|---|---|
| Two Single Filers (Combined) | 20000 |
| Married Couple (Joint) | 10000 |
*The State and Local Tax (SALT) cap is the most common marriage penalty for upper-middle-class couples in states like NY, CA, and NJ.
Medicare Surtax (3.8% NIIT) Threshold
| Status | Income Threshold ($) |
|---|---|
| Single | 200000 |
| Married | 250000 |
*The threshold does not double. Two singles can earn $400k tax-free from NIIT. A married couple starts paying the 3.8% tax at just $250k.
Execution Protocol
Ask your CPA to run a mock return for “Married Filing Separately” (MFS). While MFS usually disallows many credits (like Roth IRA contributions), in specific high-income scenarios (especially with income-based student loan repayments), it might save money.
If you own a business, the SALT cap penalty can be bypassed using the PTET (Pass-Through Entity Tax). This allows the business to pay state taxes directly, bypassing the $10k personal limit. This is a crucial workaround for married business owners.
If you are planning a December 31st wedding, check the tax impact. Your marital status on Dec 31 dictates your status for the entire year. If marriage triggers a $5,000 penalty, consider legally waiting until January 1st to sign the papers.
COACHING DIRECTIVE
- Do This: Marry for love, but plan for taxes. If you are both high earners, maximize pre-tax 401(k)s to lower your AGI below the painful surtax thresholds.
- Avoid This: Assuming “Married Filing Separately” fixes the penalty. MFS often has the worst tax brackets of all. It is rarely the solution for pure tax reduction unless specific student loan nuances apply.
Frequently Asked Questions
Is there a Marriage Bonus?
Yes. If one spouse earns $200k and the other earns $0, marriage is a huge tax bonus. The high earner gets to use the non-earner’s unused lower tax brackets and standard deduction.
Does the Standard Deduction double?
Yes. The Standard Deduction for married couples (approx $30k) is exactly double the single deduction ($15k). The penalty is mostly found in the SALT cap and the top marginal tax rates.
What about Capital Gains?
The 0% Capital Gains bracket is exactly double for married couples. However, the 3.8% NIIT surtax threshold ($250k) creates a penalty compared to two singles ($400k combined).